TY - JOUR
T1 - Finance and synchronization
AU - Cesa-Bianchi, Ambrogio
AU - Imbs, Jean
AU - Saleheen, Jumana
N1 - Funding Information:
For useful comments, we would like to thank the Editor, Charles Engel, two referees, as well as Michael Binder, Giancarlo Corsetti, Richard Harrison, Sujit Kapadia, Robert Kollmann, Eric Monnet, Franck Portier, Daniele Siena, Konstantinos Theodoridis, and Gregory Thwaites. We are also grateful for comments from attendants to the 10th Annual Workshop on “The Macroeconomics of Global Interdependence” in Dublin, the IAAE 2016 Annual Meetings, the “Workshop on International Business Cycles” at Banque de France, and seminar participants at the ECB and the Bank of England. Financial support from the Chaire Banque de France at the Paris School of Economics is gratefully acknowledged. An online appendix with additional results can be found on the authors' websites. The views expressed in this paper are solely those of the authors and should not be taken to represent those of the Bank of England.
Publisher Copyright:
© 2018 The Bank of England
PY - 2019/1
Y1 - 2019/1
N2 - In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.
AB - In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.
KW - Business cycles synchronization
KW - Common Shocks
KW - Contagion
KW - Financial linkages
KW - Idiosyncratic Shocks
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U2 - 10.1016/j.jinteco.2018.08.007
DO - 10.1016/j.jinteco.2018.08.007
M3 - Article
AN - SCOPUS:85056797845
VL - 116
SP - 74
EP - 87
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
ER -